Kay & Max’s wedding day

Kay and her husband Max recently moved to rural town an hour south of Minneapolis with their two young children and three old cats. Kay works as a financial operations manager and Max is a government attorney. The couple was able to lower their cost of living by making this move–most notably in the areas of daycare and their mortgage. As they relish this lowered spending, they want to ensure they’re allocating their “extra” money wisely. Additionally, both parents are considering staying home with the kids–at different times–and would like our thoughts on the financial feasibility of doing so.

What’s a Reader Case Study?

Case Studies address financial and life dilemmas that readers of Frugalwoods send in requesting advice. Then, we (that’d be me and YOU, dear reader) read through their situation and provide advice, encouragement, insight and feedback in the comments section.

For an example, check out the last case study. Case Studies are updated by participants (at the end of the post) several months after the Case is featured. Visit this page for links to all updated Case Studies.

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There are three options for folks interested in receiving a holistic Frugalwoods financial consultation:

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To learn more about private one-on-one consultations, check this out.

Please note that space is limited for all of the above and most especially for on-the-blog Case Studies. I do my best to accommodate everyone who applies, but there are a limited number of slots available each month.

The Goal Of Reader Case Studies

Reader Case Studies highlight a diverse range of financial situations, ages, ethnicities, locations, goals, careers, incomes, family compositions and more!

The Case Study series began in 2016 and, to date, there’ve been 86 Case Studies. I’ve featured folks with annual incomes ranging from $17k to $200k+ and net worths ranging from -$300k to $2.9M+.

I’ve featured single, married, partnered, divorced, child-filled and child-free households. I’ve featured gay, straight, queer, bisexual and polyamorous people. I’ve featured women, non-binary folks and men. I’ve featured transgender and cisgender people. I’ve had cat people and dog people. I’ve featured folks from the US, Australia, Canada, England, South Africa, Spain, Finland, Germany and France. I’ve featured people with PhDs and people with high school diplomas. I’ve featured people in their early 20’s and people in their late 60’s. I’ve featured folks who live on farms and folks who live in New York City.

Reader Case Study Guidelines

I probably don’t need to say the following because you folks are the kindest, most polite commenters on the internet, but please note that Frugalwoods is a judgement-free zone where we endeavor to help one another, not condemn.

Kay & Max’s cat Denver

There’s no room for rudeness here. The goal is to create a supportive environment where we all acknowledge we’re human, we’re flawed, but we choose to be here together, workshopping our money and our lives with positive, proactive suggestions and ideas.

A disclaimer that I am not a trained financial professional and I encourage people not to make serious financial decisions based solely on what one person on the internet advises. 

I encourage everyone to do their own research to determine the best course of action for their finances. I am not a financial advisor and I am not your financial advisor.

With that I’ll let Kay, today’s Case Study subject, take it from here!

Kay’s Story

Hi, Frugalwoods! I’m Kay, I’m 29, my husband Max is 33 and we have two newish creatures (children) and three oldish creatures (cats). Our daughter Nora is 2.5 years old, our son Julian is 6 months old and our 3 cats are Denver, Colorado, and Maui.

How did Max and I meet, you ask? I was home from college the summer before my senior year, living with my parents. They were going to see a local band at a bar, and my mom told me I needed to “get out more” and invited me along. I was a server at an outdoor wine bar, and had just been called off since it was supposed to rain, so I went along. After a few cocktails I (shy, introverted Kay), walked up to a group of young guys I saw and asked the first one I saw to dance. He said, “no, I’m married,” so I turned to the next one and asked him. He said, “no, I don’t dance.” So I asked the THIRD (yes, third… cringe) guy I saw, and he said yes! We danced all night, and it turned out we were both attending the same college! The best part is, it didn’t even rain :).

Kay and Max’s Careers

Mr. Un-Frugalwoods

We live in a fairly rural town an hour south of Minneapolis where I’m a financial ops manager at a Fortune 500 corporation. Max is a government attorney in a neighboring county (with a ~45 minute commute). I work from home full-time while our two kids–Nora, age 2.5 and Julian, age 6 months–attend daycare. We call Julian “Mr. UFW” (Un-Frugalwoods) because he ALWAYS manages to ruin his brand-new diapers. I have been working from home since my first maternity leave in January 2020. Max commutes to the office 3 days a week and works from home on Wednesdays and Fridays.

In June 2022, we sold our $600k home in a suburb of Minneapolis and moved an hour south. We decided to make this change for many reasons, including a smaller town feel, familiarity, family close by, and a lower cost of living (mortgage and daycare being the big ones!). Moving further away from the metro, we were able to buy a similarly sized, much newer and more efficient home for $475k, and the profit we made from the previous home sale gave us a 60% equity position.

This is Max’s fifth home at 33 years old. He was a “flipper” and renovated all of his past houses from top to bottom, even when the babies came along. We have already noticed how much more time we now have–Max has less house work, so he has more time to do his share of the division of labor and childcare.

Kay and Max’s Goals

Our goal at this stage is to become debt-free in the short term and financially independent in the long term. 

Max and I have both considered taking a pause from our careers (at different times) to stay at home with the kids while they’re young. Additionally, Max may have a future opportunity to join his family’s small law firm, though doing so would mean foregoing the benefits typically available at a larger firm or working for the government. While I would also like to eventually stay home, it would be much harder for me to return in my field at the level I am currently at. A recent promotion and larger-than-anticipated salary increase has also made it more difficult to walk away at this time, but I am waiting out the market to see if I’ll even have a job in a year or so.

Optimally, if I did stay home with the kids, I would not be opposed to continuing to work on more creative pursuits down the line. This all might delay our FI goals, but our children are only getting older, so we consider it a worthy sacrifice, as long as all goes well in the meantime.


Winter in Minnesota – with hand-me-down gear

Our hobbies have been substantially put on the back-burner with our two young kids. Before kids, we did many outdoor activities, especially in the summer: biking, walking, swimming, boating, wakesurfing, laying on the beach. We started camping last year as a family. I also want to do more winter activities in the next few years: ice skating, cross country skiing, snowshoeing – since Minnesota’s main season is winter.

I recently tried out downhill skiing (like Mrs. FW!) and would love to get the kids involved in that. In the winter, we also like to work on large puzzles. I enjoy reading, writing, cooking, dancing, yoga, and painting, and would like to increase my involvement in those hobbies. Max is an avid snowboarder and used to take two trips a year, to Upper Michigan and Colorado or Utah. This is all to say, we want to get to a point where we have more time to do these hobbies with our kids.

What feels most pressing right now? What brings you to submit a Case Study?

A desire to decrease our spending and recalibrate where we’re saving/investing.

Before moving, we were paying $900 PER WEEK for both kids in daycare. Between the savings on daycare and our new mortgage, I want to be conscientious about where that money goes now that it’s freed up. We are putting an extra $1,600 toward our monthly mortgage payments with the aim of paying it off in around 6 years.

I also realize in doing this exercise that we are really cutting it close when it comes to our monthly expenses. It’s hard to balance saving, both short and long term, debt reduction, investing, and LIVING, and I think we’re trying to do it all at once.

I consider myself a cross between Minimalist, Frugalist, and Financial Independence Pursuer. However, this is a relatively new lifestyle choice for me. My parents are big “finance it and don’t consider the future” people. Max, on the other hand, was raised to be frugal, though his parents did quite well for themselves. It feels like we’re the only people we know on this “unconventional” track. The older I get, the more I hear about friends’ money woes and the effect it has on their mental health and relationships.

What’s the best part of your current lifestyle/routine?

Enjoying our young kids on the evenings and weekends. Having time for ourselves after the kids are in bed – whether it be exercising, self care, or simple social time with each other.

Camping and swimming last summer

I like that I can prepare dinner before everyone gets home and do other chores during the day, even while I’m working

I like that we can “afford” what we need and then some. I like that our only debt is our mortgage (when we refinanced a few years back, we used some of that cash to pay off our student loans due to a substantially lower interest rate on our mortgage). We finally have more of a safety net/emergency fund with the cash from the house sale.

We enjoy eating out occasionally, but we don’t always have great luck with service when we do. Also – the two small children limit our chances. We’ve also been cutting back on takeout, and instead trying to cook a “fancy” meal (like steaks or homemade burgers) on the weekends, which is more expensive than a regular meal, but still cheaper than eating out!

We also enjoy having friends over to grill and entertaining on the porch in the summers, when the kids are in bed.

Something that really stuck with me while reading Frugalwoods is the fact that kids do not need to be expensive. I have Julian on generic formula and diapers. He wears 100% used clothing. And I recently made it my mission to find gender-neutral winter gear in all of the sizes we will need in the next few years on facebook marketplace. So much kismet! Yes, daycare and formula are expensive, but these are also SO temporary for us.

What’s the worst part of your current lifestyle/routine?

  • Feeling like we don’t have any time. With two young kids, it’s extremely hard to stay on top of everything.
  • Feeling like we aren’t being strategic enough with our  money to reach our goals.
  • Balancing self care/treats with frugality at a time in our lives when we feel we most deserve treats.

Where Kay and Max Want to be in Ten Years:

A painting I did a lifetime ago


  • Mortgage free, hopefully financially independent, and with passive income.
  • Having a much bigger savings/nest egg.
  • Simplify our spending so we can spend more on big, important things, like travel and activities, and less on consumer products.


  • Lots of activities with our kids, but also time for individual hobbies.
  • Max and I have been trying to take a yearly “adult” trip to somewhere beachy, sans kids, but once the kids are older we’d like to do trips with them as well.
  • We also want recurring date nights where we leave the kids with a sitter or grandparents. We’ve always said we’re not “just” parents and want to continue cultivating our marriage and individual interests.


  • Max would hopefully be managing his family’s law firm. 
  • I would be either working a low-stress job or home with the kids but pursuing other creative pursuits. I have ideas for some children’s books I’d like to write and maybe publish someday.

Kay and Max’s Finances


Item Amount Notes
Max’s net income $3,962 Max’s net salary, minus the following deductions: health and dental insurance, pension contributions, daycare expense account and taxes.
Kay’s net income $3,948 Kay’s net salary, minus 401k contributions and taxes.
Monthly subtotal: $7,910
Annual total: $94,920

Mortgage Details

Item Outstanding loan balance Interest Rate Loan Period and Terms Equity Purchase price and year
Mortgage on primary residence $255,000 4.63% 15-year fixed-rate mortgage $136,946 $475k. We got a good deal in the hot market! We’re paying $1,600 extra per month.

Debts: $0


Item Amount Notes Interest/type of securities held/Stock ticker Name of bank/brokerage Expense Ratio
Max’s IRA from previous employer $59,648 US Bank 0.24
Kay’s Employer 401k $42,665 6% employer match, I’m contributing 10% Fidelity 0.06%
Emergency fund – high yield $28,178 Just began contributing $100/week automatically. This is where most of our house sale profit went 0.75% Vio 
Kay’s Roth IRA $15,818 Started contributing 2 years ago, maxed out Automated Investor account, Highest risk selected US Bank 0.24
Savings account $14,188 This amount includes funds for both our roths (6k) next year 0.01% US Bank
i Bond $10,000 Opened this summer, after house sale. Maxed out. 9.62% TreasuryDirect
Max’s Roth IRA $9,819 Started contributing last year, maxed out Automated Investor account, Highest risk selected US Bank 0.24
Checking account $5,000 This is where our paychecks come in and recurring bills are paid US Bank
Max’s current Employer pension plan $2,500 Vested at five years service. Full benefit at 65.  Benefit is 50% of average salary over five years of highest earning before retirement.  e.g. if he makes $100k, 105k, 110k, 115k, 120k for his five best years, the average is 110k so the pension would be $55k/yr for life.  U/K
529 – kid 1 $163 Just opened. Had a deal for $50 when you set up a recurring payment on a new acct
529 – kid 2 $163 Just opened. Had a deal for $50 when you set up a recurring payment on a new acct
Dependent Care Account Varies – $5k per year Employee sponsored Dependent care account. Pre-taxed for daycare up to $5k. We wish this covered more!
Total: $188,142


Vehicle make, model, year Valued at Mileage Paid off?
GMC Acadia, 2012 $10,730 120,000 Yes
Chevrolet Impala, 2006 $7,500 65,000 Yes, Max just sold his BMW so we could buy this. So frugal!
Winnebago RV, 1968 (vintage!) $7,500 15,000 Yes
Harley motorcycle, 200 $6,000 12,000 Yes
Total: $31,730


Item Amount Notes
Mortgage payment $3,950 We’re paying an extra $1,600 per month toward principal. Amount listed includes escrowed insurance and tax
Daycare $2,360 This is the highest it will ever be. As the kids age into new rooms, the cost goes down.
Utilities $450 Electric, gas, water, garbage, internet – this is an average since winter utilities are higher
Groceries $350 This has gone up since we moved away from Aldi 🙁
Gas $275 Ouch.
Vacation $90 Going to Florida next March, kid free, for my 30th birthday!
Car Insurance $80 Paid bi-annually, Progressive
Household $60 Paper products, cleaning, etc.
Alcohol and Bars $60 This could be lowered.
Restaurants $60 We are trying to eat out less, but this is our average currently
Baby $40 Formula and diapers (generic). We’ll be done with formula in ~3 months!!
Pets $40 Special food, unexpected vet bills, litter.
Personal care $40 I used to color my hair, so this expense will go down since I’ve gone natural. Since having a baby, I do value some personal care items to feel like a human (mascara, nail polish, teeth whitening)
Car misc $40 Higher than average this year – we needed some repairs done in order to sell our old car
Life Insurance $38 Banner
Cell phones $30 Mint mobile – $15 / line
Home Improvement $30 Minor things that come up with homeownership. This was a much bigger bucket at our last house 🙂
Babysitter $30 Just found a new local babysitter for when grandma and grandpa are unavailable
Gifts/Donations $20 Gift cards for weddings, showers, donating to our local cat rescue.
Clothing $10 I haven’t bought many new clothes in the past few years. Max wears things until they fall apart
RV/Motorcycle Reg $10
Kids misc $5 I haven’t bought any baby supplies for Julian, since we had everything already. I buy a few used books and toys for Nora, but keep it minimal
Kid’s clothes $5 We’ve been really lucky to get hand-me-downs for both kids. I have been selling anything both kids have outgrown on Marketplace
Netflix $4 We use my parents’ account and pay them $50 for the year
Monthly subtotal: $8,077
Annual total: $96,924

Credit Card Strategy

Card Name Rewards Type? Bank/card company
US Bank Perks Cash back US Bank
Chase Unlimited Cash back Chase Bank
Amazon Signature (only used on Amazon) Amazon Points Chase Bank
Target Credit Card (only used at Target) 5% Target discount, free shipping
Old Navy CC (only used at Old Navy) Discounts and rewards

Kay’s Questions For You:

  1. Where should we allocate the extra cash from our house sale?
    • It feels risky to invest right now, but I am fairly certain we have too much cash on hand that is not “working” for us.
  2. How much should we sacrifice now, while our children are little?
    • For example, we try not to eat out, but the convenience during this hectic phase of life feels necessary at times.
    • Plus, we’ve been avoiding activities/outings like the zoo, community centers, and kid lessons to save money, but again, is this savings worth it?
  3. Should either of us consider staying home with the kids (even though daycare is much cheaper now), especially if I get laid off?
    • I worry there will be aspects of staying home that I don’t enjoy (such as, when would I get a break?), and part of me wants to keep working in order to alleviate some of the financial pressure from Max.
    • I also love to see my daughter’s social progress in daycare and definitely want to send her to to public preschool when she’s old enough (fall 2023).

Liz Frugalwoods’ Recommendations

The first of many walks on the beach

Way to go, Kay and Max! You’ve made some excellent decisions over the years and put yourselves in a position of financial strength. I commend them for making the choice to move to a lower cost of living area–that’s one of the most substantial changes you can make to improve your overall financial health. Moving is a gigantic pain, but in this case, they were able to lower both their mortgage and daycare costs, which are their two biggest line items. Well done! Let’s dive into Kay’s questions:

Kay’s Question #1: Where should we allocate the extra cash from our house sale?

What a fabulous problem to have :)! No seriously, it is very fun when we have “extra” money to work with! In order to effectively answer this question, I want to do a holistic overview of Kay and Max’s assets. We’ll start with their…

1) Cash: $47,366

Between their three savings/checking accounts, Max and Kay have $47,366. How is this for an emergency fund? Let’s do the math!

Their monthly spending is $8,077. Since an emergency fund should be somewhere between 3 and 6 months’ worth of your spending, here’s what Max and Kay should target:

$8,077 x 3 = $24,231

$8,077  x 6 = $48,462

In light of that, they are spot on!


  1. Keep this amount liquid as your emergency fund. They’re wise to have this cash on hand for… emergencies! To Kay’s question about having “too much” cash on hand, they really don’t. If they decide to dramatically decrease their spending, then they might be overbalanced on cash. But at present, they’re just right.
  2. Consider consolidating your three accounts into one. Unless you personally prefer to have separate accounts, I find it a lot easier to have all my cash in one place.
  3. Look into moving this cash to a higher-yield savings account. One (the only?) good thing about raising interest rates is that interest rates on high-yield checking accounts are also going up. Everyone should take advantage of this for ’tis free money.
    • One of the best options on the market right now is the American Express Personal Savings account, which–as of this writing–earns 2% in interest (affiliate link).
    • With that account, Max and Kay’s $47,366 would earn $947 in interest in just one year! This is a lot higher than the 0.75% they’re currently earning.

2) Retirement: $130,450

Tallying up their 401ks, IRAs and Max’s pension, they have $130,450 invested for their retirement. Let’s refer to Fidelity’s retirement rule of thumb to see how they’re doing:

Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67

As they’re 29 and 33, let’s split the difference and say they’re 30, which means they should have 1x their combined salaries. At a combined net income of $94,920, their retirement accounts are on track.

Max’s Pension

Aquarium fun – one of our few adventures last winter

Max’s pension is a bit of a wildcard since it sounds like he may not remain working for the government for the duration of his career. Kay detailed what the full benefit amount would be, but I’m unclear how many years of service he needs in order to qualify. She noted he’ll be “vested at five years of service,” but that seems low for full benefit eligibility? But I very well may be wrong. I encourage them to dig into this a bit more to ensure they’re clear on how his pension is structured. If Max is indeed eligible for the full benefit after just five years of service, he should definitely stay at this job for those five years!

Account Fees/Expense Ratios

Something that jumps out at me are the high expense ratios on their US Bank accounts. While 0.24% doesn’t sound like a lot, it’ll eat away at Max and Kay’s money over the decades leading up to their retirement. I highly recommend they look into moving all of their retirement investments over to a brokerage that offers low-fee total market index funds. It’s the same product, just cheaper!

For reference, the following three brokerages offer DIY low-fee investment options:

  • Fidelity’s Total Market Index Fund (FSKAX) has an expense ratio of 0.015%
  • Charles Schwab’s Total Market Index Fund (SWTSX) has an expense ratio of 0.03%
  • Vanguard’s Total Market Index Fund (VTSAX) has an expense ratio of 0.04%

Wondering how to find a fund’s expense ratio? Check out the tutorial in this Case Study.

Roth Versus Regular

 I note that Kay and Max both have Roth IRAs, so I want to spend a moment on the difference between a Roth and a regular.

Surfing on one of our childless vacations

A Roth IRA is:

  • A retirement account that’s post-tax
  • That means you pay taxes on the money you put into a Roth IRA, but you don’t pay taxes when you withdraw the money in retirement.
  • A Roth IRA grows tax free.
  • You need to be age 59.5 before you can withdraw money penalty-free (although there are exceptions).
  • Your eligibility to contribute to a Roth IRA depends on your income and your particular tax situation.
  • The maximum annual contribution amount in 2022 is $6,000 if you’re under 50; $7,000 if you’ve over 50.
  • I like this article on Roth IRAs if you want to read more.

A Traditional IRA is:

  • A retirement account that’s pre-tax
  • This means you don’t pay taxes on money you put into an IRA, but you do pay taxes when you withdraw the money in retirement.
  • There are no income limits. Anyone can contribute to a traditional IRA.
  • You need to be age 59.5 before you can withdraw money penalty-free (although there are exceptions).
  • More about traditional IRAs here.
  • The maximum annual contribution amount in 2022 is $6,000 if you’re under 50; $7,000 if you’ve over 50.

A person can have both a Roth and a traditional IRA, but their combined annual contribution to both can’t exceed that $6k limit (if you’re under 50; $7k if you’ve over 50).

The Roth Income Threshold

What jumps out to me here is that it’s possible Max and Kay have exceeded (or will exceed if they receive raises) the income limit for contributing to a Roth IRA. As noted above, your eligibility to contribute to a Roth is based in part on your income. People with higher incomes are prohibited from contributing to a Roth and need to instead use a regular IRA.

According to Charles Schwab:

If you file taxes as a single person, your Modified Adjusted Gross Income (MAGI) must be under $140,000 for the tax year 2021 and under $144,000 for the tax year 2022 to contribute to a Roth IRA, and if you’re married and file jointly, your MAGI must be under $208,000 for the tax year 2021 and $214,000 for the tax year 2022.

Thus, depending on how Max and Kay file their taxes–and what their MAGI is–they may be out of range for a Roth IRA.

Retirement Suggestions:

  1. Explore moving all retirement investments to a brokerage that offers a low-fee total market index fund.
  2. Determine your MAGI and how you file your taxes (singly or jointly). With that information in hand, refer to the above for whether or not you still qualify for a Roth. If your income precludes you from having a Roth, you can instead start contributing to a regular IRA. Here again, ensure you’re at a brokerage offering a low-fee total market index fund.

3) 529s

529s are tax-advantaged college savings accounts and Kay and Max wisely opened one up for each of their children.

Both of my kids had true knots in their umbilical cords. You can’t see this in Ultrasounds

While 529s are great, be sure you’re not prioritizing contributions to the 529 ahead of your retirement accounts. This is a “put your own oxygen mask on first” scenario. While you want to provide for your children, you must provide for your own retirement. Kids can take out loans for school, you cannot take out loans for retirement. I always advise parents to first ensure they’re on track for their own retirement, then contribute to a 529 account.

The scenario you want to avoid is that you pay for your kids’ college and then have to move in with them in your old age because you didn’t save enough for retirement. I’m not saying that’s going to happen to Kay and Max—that’s just my standard cautionary tale around 529s (and other college savings accounts).


  1. Ensure you’re prioritizing saving for your retirement ahead of 529 contributions.
  2. If you haven’t already, you can give the 529 account information to both sets of grandparents (and anyone else!) and they can contribute as well.

4) I Bonds: $10,000

What’s an I Bond, you may be wondering? The US Treasury Department explains:

Series I savings bonds protect you from inflation. With an I bond, you earn both a fixed rate of interest and a rate that changes with inflation. Twice a year, we set the inflation rate for the next 6 months.

Cool. Bonds are generally considered less risky than stocks because they fluctuate less. However, they fluctuate less, which means you potentially miss out on huge stock market runs. Investing is always a question of risk and reward: in general, the riskier the investment (i.e. the stock market), the higher the payout, but the greater the potential for loss. Conversely, the less risky the investment (i.e. bonds), the lower the payout, but the lower the potential for loss. Given their inverse relationship, many folks like to have a diversified portfolio of the riskier (stocks) and the less risky (bonds).

As with most things in life, you ideally do not want to put all of your investment eggs in one basket. You want to have a broad, diversified set of investments so that you’re able to take advantage of the upsides and cushion yourself from the downsides.

With their I Bonds, Kay and Max have locked in a return of 9.62%. As noted, the Treasury Department changes this rate every six month.

5) Early Mortgage Pay-Off

I want to spend a moment on Kay and Max’s decision to pay down their mortgage early. Paying off a mortgage early (in other words, before the loan term mandates) is one of those controversial, very personal decisions. There are plusses and minuses to the decision, which I’ll run through. P.S. I personally paid off my own mortgage early, so I may be somewhat biased.

Miss Maui


  • You no longer have a mortgage payment!
  • You own your home outright!
  • You don’t lose any more money to interest!
  • It feels REALLY good to know that you alone own your home!


It Ties Up Your Money

  • A lot of your money becomes tied up in an illiquid asset. This can be a problem because:
    • You can’t buy groceries with a paid-off house
    • You can’t pay medical bills with a paid-off house
    • In other words, if you have an emergency/job loss/etc, you no longer have the cash on hand that you funneled into paying off your house.
  • A house is an illiquid asset because:
    • If you sell it, you have to find somewhere else to live
    • You’re never guaranteed to sell a house quickly or for the price you paid for it (it can decrease in value)
  • What about a HELOC (home equity line of credit)?
    • Yes, sometimes you can get a HELOC to extract cash from a house, but you may not qualify–particularly not if you’ve lost your job and that’s why you need the money. Plus, it’ll have an interest rate attached.

It’s A Huge Opportunity Cost:

  • When you put all your money into paying off your mortgage, that means you can’t use that money for other things, such as:
    • Investing for retirement
    • Investing for your kids’ college
    • Investing in taxable investments
  • When you pay off a mortgage, you lock in a rate of return equal to the interest rate of your mortgage. In Kay and Max’s case, they’ll be locking in a 4.63% rate of return.
    • This isn’t bad, but it’s a lot less than other potential investments:
      • Their I Bonds, for example, have a 9.62% rate of return
      • The stock market–on average, over time, and based on historical data–returns 7% annually
  • Keeping a mortgage is also a great hedge against inflation because–as long as you have a fixed-rate mortgage–you’ve locked in that dollar amount and what you pay doesn’t increase as inflation increases.
    • Unfortunately, we all have a front row seat to inflation right now and everyone who has a low-interest rate mortgage is feeling pretty good about themselves (as they should!).
The kitties were mentioned in every single wedding speech, so they got an honorary picture

All that to say, it’s not exactly a “bad” decision to pay off a mortgage early, but it’s not exactly a “good” decision either. As with most decisions we must make as adults, you have to weigh the pros and cons. Barf.

There are scenarios where I categorically tell people to STOP paying down a mortgage early, including:

  1. If you don’t have a robust emergency fund.
  2. If you’re not on track (or ahead) on retirement.
  3. If you’re having trouble cash flowing your expenses every month.
  4. If you’re facing a potential lay-off/reduction in income and need to build up a larger savings buffer.
  5. If you have a large expense(s) on the near horizon–such as buying a car–and need to save up in order to avoid financing/debt.

#3 applies to Kay and Max, which is one reason they might want to consider at least reducing the extra $1,600 they’re putting towards their mortgage every month. There is NO world where it makes sense to go into debt in order to pay off a fixed, low-interest rate mortgage early

Kay’s Question #2: How much should we sacrifice now, while our children are little? For example, we try not to eat out, but the convenience during this hectic phase of life feels necessary at times. Plus, we’ve been avoiding activities/outings like the zoo, community centers, and kid lessons to save money, but again, is this savings worth it?

As I just noted, the outstanding issue is that their spending outstrips their income. But, Kay and Max could easily make up the $167 deficit between their income and expenses by reducing the extra mortgage payment each month.

Aside from the need to cash flow their monthly expenses, this is a question that only Kay and Max can answer because they’re meeting the baseline financial benchmarks of:

  • Having an correctly-sized emergency fund
  • Being on track for retirement
  • Having no debt other than their mortgage
  • Saving for their kids’ college

We could nickel and dime their restaurant and vacation spending, but those aren’t going to amount to all that much. Their spending is concentrated on The Big Two:

Item Amount Notes
Mortgage payment $3,950 We’re paying an extra $1,600 per month toward principal. Amount listed includes escrowed insurance and tax.
Daycare $2,360 This is the highest it will ever be. As the kids age into new rooms, the cost goes down.
Total: $6,310
ALL Other Expenses $1,767
The night it didn’t rain

For my money and time–especially as a working parent of two young kids–I wouldn’t bother touching the “all other” categories. I’d simply reduce the overpayment on the mortgage and call it a day. One approach would be for Max and Kay to cease overpaying on the mortgage until the kids are done with daycare. Then, they could take the daycare payment and chuck it into the mortgage.

If they followed this approach they’d be able to:

  1. Comfortably cash flow their monthly spending
  2. Afford trips to the zoo, community center, etc
  3. Still be able to pay off their mortgage early by using the erstwhile daycare payment to pay it off

At Kay and Max’s income level, there’s no reason for them to make themselves miserable. If you want to take your kids to the zoo, take your kids to the zoo! There’s no point in working hard and being smart with your money if you can’t also spend it and enjoy it! Please go to the zoo. For me!

Kay’s Question #3: Should either of us consider staying home with the kids (even though daycare is much cheaper now), especially if I get laid off? I worry there will be aspects of staying home that I don’t enjoy (such as, when would I get a break?), and part of me wants to keep working in order to alleviate some of the financial pressure from Max. I also love to see my daughter’s social progress in daycare and definitely want to send her to to public preschool when she’s old enough (fall 2023).

If I’m reading between the lines correctly, it sounds like Kay and Max perhaps think they “should” stay home with their kids, but don’t actually want to. I too do not want to stay home with my kids, which is why I pay for preschool. This is more of a lifestyle question than a financial question. If Kay and/or Max want to take turns being a full-time parent, go for it! If not, know that you’re making the best decision for your family by prioritizing YOUR mental health and YOUR enjoyment. As Kay SO wisely said:

We’ve always said we’re not “just” parents and want to continue cultivating our marriage and individual interests.

It is great to stay home with your kids. It is great to not stay home with your kids. You do you.

From a financial perspective, without a daycare payment and without the extra payment on their mortgage, they’d be perfectly fine on one salary:

  • Kay and Max each make ~$3,900/month (makes the math very easy!)
  • Daycare is $2,360/month
  • Overpayment on mortgage is $1,600/month
  • No daycare + No overpayment on mortgage = $3,960…. hmmm how convenient of a total this is!!!

What we see here is that one of the parents staying home would be a wash (as long as they’re willing to give up the mortgage overpayment for the time being). This is really and truly a “do what you want to do” situation. I love it when that happens!


  1. Queen kiki (Colorado)

    Keep your cash in cash as your emergency fund.

  2. Consider consolidating your three cash accounts into one:
    • One of the best options on the market right now is the American Express Personal Savings account, which–as of this writing–earns 2% in interest (affiliate link). With that account, your $47,366 would earn $947 in interest in just one year.
  3. Explore moving all retirement investments to a brokerage that offers a low-fee total market index fund.
  4. Determine your MAGI and how you file your taxes (singly or jointly).
    • With that information in hand, refer to the above for whether or not you still qualify for a Roth IRA. If your income precludes you from having a Roth, you can instead start contributing to a regular IRA. Here again, ensure you’re at a brokerage offering a low-fee total market index fund.
  5. Ensure you know the details of Max’s pension plan.
    • If he is indeed fully vested at five years, plan to remain in that position for at least five years.
  6. Prioritize saving for your retirement ahead of 529 contributions.
    • If you haven’t already, you can give the 529 account information to both sets of grandparents (and anyone else!) and they can contribute as well.
  7. Know the risk vs. reward of bond vs. stock investing.
  8. If you want to take turns being stay-at-home parents, eliminate the daycare and mortgage pre-payment expenses and it’ll be a financial wash.
  9. If you don’t WANT to stay at home with the kids, don’t. There’s no financial imperative either way.
  10. Consider reducing/eliminating the monthly mortgage pre-payment (regardless of whether or not a parent stays home) so that you can:
    • Comfortably cash flow your monthly spending
    • Afford trips to the zoo, community center, etc
    • Once the kids are out of daycare, apply the erstwhile daycare payment to paying off the mortgage (if you want to)
  11. Pat yourselves on the back; you’re doing great!!!

Ok Frugalwoods nation, what advice do you have for Kay? We’ll both reply to comments, so please feel free to ask questions!

Would you like your own Case Study to appear here on Frugalwoods? Apply to be an on-the-blog Case Study subject here. Hire me for a private financial consultation here. Schedule an hourlong call with me here, refer a friend to me here, or email me with questions (liz@frugalwoods.com).

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  1. Mrs Frugalwoods, “ I too do not want to stay home with my kids, which is why I pay for preschool.” is the best thing I have read today. I laughed out loud. Before I had my child I thought I would like to be a stay at home mom. Maternity leave and remote K have both shown me how wrong I was!

    1. ps Kay and Max- regarding outings – we have a membership to our local children’s science museum, which is great. It means we can go whenever we want, no pressure or worries if we only stay for half an hour because someone gets hungry/tired/hot/cold. The exhibits rotate often enough and we get discounts on other area museums if we go. Especially when your kids are so small something like that may be a great option to get out of the house and change it up – we spend about $100 a year on it.

        1. When our kids were small I bought a membership at a museum that was several states away, while we were on vacation. The reciprocal privileges specified that you’d get free or discounted admission at other museums that weren’t within 50 miles. We used this to visit allllllllll the museums, wherever we went. There’s a network called the Association of Childrens museums, and they have a huge reach.

        2. I’m fairly sure I live close to you. We are also an hour south of the Twin Cities. We have a Minnesota Zoo membership, and we also have one to the Children’s museum in St Paul. The drive isn’t too bad. We also love visiting Mankato for their children’s museum, and we get a discount due to the St Paul membership. There are plenty of other good options in the cities as kids age, like the Science Museum of Minnesota and the Works museum. Como Zoo is also really fun. Valleyfair does really cheap season passes, so lots of our friends do that.

          1. Oh, and someone mentioned the $250 friends plus membership. We have that! You also get free tickets to several special things like the Jack o lantern spectacular and the illuminated winter trail. They’re so awesome!

            Another favorite family tradition we have is visiting the Kiwanis holiday lights in Mankato.

            We live in Faribault. Happy to have Mrs. Frugalwoods give you my email is that’s close to you. I can recommend tons of kids stuff in this area too!

          2. Hi Leah! Thanks for the helpful info! That all sounds great! I would love it if Mrs. FW could connect us via email 🙂

        3. Memberships were going to be my suggestion as well! Not sure if you make or would make the hour drive back to the city regularly but it appears that both the Minneapolis Zoo and Minneapolis Childrens Museum have annual memberships around $150. The Zoo also is part of AZA and has reciprocal membership with many other zoos for 50% off admission. Could be a good idea for holiday present to the kids/family if anyone is asking about gift ideas.

          Also – LIBRARY PASSES and free museums or museum free days! Check out your local library as many have passes to area attractions – in my area this includes everything from children’s museums to art museums to 1/2 price ferry fare at the Boston Harbor Islands to free parking at state parks. Between library passes and looking out for free days at local museums I have visited attractions throughout New England for free…

      1. Yes yes yes. Our extended family goes in on a family membership in lieu of physical gifts and it is the greatest gift a family can receive. It doesn’t clutter the house or break in two seconds.

        There’s also a mental pattern when I pay for tickets as a parent. Guilty of feeling like YOU MUST DO IT ALL! I PAID TO BE HERE! With a membership, the kids build familiarity and really that’s when the fun starts. We go each time with a budget (here’s your $10, buy/eat whatever you want with this money, but when it’s gone it’s gone. We have water and snacks in a backpack) So far we have been members of the local children’s museum and the zoo and really cannot recommend it more. Also, reciprocity benefits for travels or even within our own city they will do a membership trade where they swap benefits with another institution for a day.

        1. Yes! I get so stressed out if we are NOT GETTING OUR MONEY’S WORTH that I tend to make everyone miserable. Working on it!

          1. It sounds like you’re relatively close to the Minnesota Zoo. Membership was awesome when our kids were little, because we never felt guilty for going just a few hours or only on one trail. Another option to membership is to make it part of your charitable giving. A $250 or more donation gets a Friends plus membership for a year, which is your family and two free guests each visit.

    2. Hahah SAME. After Covid I was like, “Hello, yes, I would like to purchase all of the preschool you have available. Please keep my credit card on file and expect delivery of one 3-year-old. Thank you.” I think it’s so important to normalize this for parents–if you WANT to stay home, do it! If you DON’T want to stay home, don’t! We’re all different people and so of course we’re all going to want to parent differently.

    3. Isn’t it funny how it works out? I know so many people – so, so many – from all walks of life, who had very specific and clear notions of How They Would Parent re staying home / going back to work etcetera.

      Most of those people changed their minds within 2 years. One very notable person had been incredibly strident about needing to work to feel like a person, to be fulfilled and so on. 3 days after the birth of the first baby, the decision was made to stay at home parent and homeschool forever!

      What’s wonderful is when there are options either way, when one is not literally financially forced to do one thing or the other against one’s will. That’s such a breeding ground for resentment and issues down the line. Kudos to Kay and Max for really intentionally thinking through how they want to do things, and adjusting as things change – which they do, so fast!

  2. I just wanted to throw out there that actually, it would *not* be a wash if one of them quit their job to stay home. The $3500 in take-home pay is after retirement savings and health insurance deductions, so they’d also need to think about the implication of that change.

    1. Agreed! They should also compare the things they get from their respective employers that don’t show up on their gross salaries – employee match on retirement funds, short and long term disability policies, life insurance, etc.

      1. There is also an “area under the curve” consideration. Salary growth/increase in experience and responsibilities continue over time. You give up that potential by leaving for a period of time. It also might not be easy to back in at the same level you left without additional training/recertification.

        If you decide that staying home is definitely something you want to try, but not forever, you could look into taking an unpaid leave of absence for several months up to a year.

  3. Many libraries offer free admission tickets to the bigger museums in the area. See what your library offers.

  4. About kid lessons- it can be hard to decide wen to commit time and funds to this. It’s also hard to know if your child will like (and stick with) karate or piano until they try. Look for community events with demonstrations of different activities, organizations that offer a trial lesson, or summer camp weeks with a variety of activities. Ultimately it may turn out that year of dance lessons or time attending baseball games was “wasted” when the kids decide against. But that’s part of the journey to finding their thing. You may want to prioritise lifelong activities (like swimming versus football).

  5. Wow you are doing awesome! Congrats. Definitely agree with Liz that you should live your best life and slow down on the mortgage overpayment if need be. I had 2 other suggestions: I’m pretty sure you are EACH allowed $10K in i-bonds (and I think you could do another $10K if you had a trust). Given the amazing interest rate right now and that you only tie up your money for 1 year, if I were you i would use some of the $ youre saving for next year’s IRA for that and use the extra money from reducing mortgage overpayment to replenish your savings. Also I think Liz cautioned about income limitations on a Roth which is true but I believe you can do an IRA and roll it over into a “backdoor” Roth.

    1. I completely agree with this. The i-Bonds seem like an excellent place to store emergency funds for awhile as long as you can manage the first year without access to the funds. The higher rate will readjust next month so this suggestion might change but I recommend a $10,000 iBond for both Kay and Max for the next year. Even if the inflation rate went negative in November which is very unlikely, it would still be one year of interest income at almost 5%! We also opened a trust to allocate another $10,000. We utilized revocable trust forms from the library to create ours and had it notarized. There is a 3 month penalty to cash-in the iBonds before 5 years but is still a great deal right now compared to savings account interest rates. Good job Kay and Max on all your progress so far!

  6. Re kid lessons and experiences: the kids in question are very young! Yes a 2.5 year old would enjoy a zoo or whatever, but there absolutely must be other free-or-nearly-free things that she’d enjoy just as much. Other than swimming lessons (a non-negotiable life skill as far as I’m concerned, for all children, as soon as they can feasibly learn to swim properly), there will be so much time for the other lesson type activities. So much time.

    And for the baby, he seriously will not miss out on anything at all if you do not take him on one single lesson or experience or anything at all beyond what you’d normally do in your regular lives, for another solid 1-1.5 years. He’s a baby. Everything is new and fun, that’s the best bit of being a brand-new person!

    Top tip: if you want to sign either of them up for anything, take full and unapologetic advantage of free or low-cost taster sessions and pay for the minimum upfront number of lessons or sessions, even if it works out more pricey per session. Kids are fickle little dears, and while one can hold the line and make them finish up the 6-week package of dance lessons or karate lessons, paying 3 months upfront could prove to be a struggle if the kid takes against it!

    1. This is a good point! I think having a covid baby made me feel like we weren’t doing enough. We did actually sign us all up for parent/child swimming lessons through community ed after writing this case study.

  7. I.am amazed they can keep grocery spending at $350 /month for 4 people. Even adding on $60 for paper and cleaning products that still is only $410 per month My husband and I are retired and live in a small town in Ohio where the cost of living is low and we spend at least $600 per month for both . We cook at home most of the time, however, added to that we spend at least $75 per month for out to eat “treat” meals. I guess I need to look at this and see where we could cut back. Anyone else feel they are spending way more on food and household products ??

    1. I am extremely conscious of our grocery budget. I do a weekly online pickup order and that ensures I don’t go over. Also, it’s basically for a family of 2 currently since both kids eat essentially nothing (YET). I’m sure it will go up once Nora gets a bigger opinion 🙂

    2. We are a family of six (4 boys 9 and under who all like to eat). We live in Ohio and we spend between $400-450 on groceries each month. We eat cheap cuts of meat. Chicken quarters instead of chicken breasts, hamburger instead of roasts, roasts (occasionally) instead of steak (basically never). I do buy in bulk which helps. I also shop at an Amish bent and dent once a quarter or so. Grocery pickup orders definitely help me keep an eye on the budget and our grocery store offers online coupons. I buy extra meat when it’s on sale and throw it in the freezer. I almost never pay normal price for meat. We eat “cheaper” fruits and veggies and generally only get the nicer produce when it’s in season and on sale. (For example: peaches only in the summer, asparagus only in the late spring.) We don’t eat organic but I do cook a fair amount from scratch.

      1. This sounds like us! It’s definitely more work ahead of time, but it is so worth it. So true about never buying meat at full price. The next thing on our agenda is to get a garage freezer so we can stock up as needed.

  8. I would add on the zoo membership, but not get overly ambitious about starting kids activities. Maybe swim lessons. We are in much the same situation as you with slightly older kids, moved to LCOL, 75% equity in our house, and are down to one daycare bill. We’ve shifted the entirety of our daycare bills into travel, are technically coast FI, and feel like we are financially capable of weathering whatever storm comes out of this volatile global economy.

    If I were you, I’d lean into these young kid years by keeping life simple, stockpiling cash/investments and keep a check figure to ensure you’re keeping your lifestyle in line with living on one income of that’s what you choose.

    Also, no harm in saving that mortgage pre-payment in a savings account for now and planning a lump sum payoff in a few years as the balance grows. You can also recast your mortgage for a lower payment at the same rate/amortization table if you want to reduce your payment.

    1. All of these points are so valid! We are trying to live more simply so we can reach our goals quicker, but also just learn how to live on less and enjoy more! We have definitely thought about saving the mortgage payments and paying a lump sum later, so maybe we will revisit that idea. Thanks!

  9. Agree with FW – you seem to think you maybe SHOULD stay home with the kids, and that’s definitely not the case! One thing to consider – have you looked into whether you could go part time? You mention wanting more time for hobbies / with kids / etc. If it’s an option for you and sounds enticing, look into whether you can swing it!

    Other ways to save time to make more time for your hobbies: ADDITIONAL CHILDCARE. Not caring as much about the house being clean/etc, and outsourcing what is needed. Keeping a time log to understand where you might have little pockets of time that you could use in a way that adds more value to you. COMMITTING to a hobby once/week such as a class, group sport, book club, choir, etc – once you’ve committed, you will make it work, and it can go a surprisingly long way towards making you feel like you have more time for yourself! Would recommend reading any of time management expert Laura Vanderkam’s work or listening to her podcast, where I got a lot of these ideas from!

    1. I wish I could do part time in my field! I definitely need to work through not caring so much about a clean house and committing more time to my own hobbies. I will check out Laura Vanderkam, thanks!!

      1. Kay I also discovered KC Davis last week. She has a very short book called “how to keep house while you are drowning” that really spoke to me, as a parent whose house always feels a wreck.

      2. On a related note…as a former working mom who is now a SAHM, the house is much harder to keep clean than it used to be! When the kids were at daycare, they weren’t getting the house dirty haha. And it’s tricky carving out the time to do chores with a clingy 4 year old in tow (my oldest is in school now). Definitely don’t find myself with time for hobbies etc during the day!! Maybe next year…. There are pluses to staying home (primarily in the form of more time with both kids) but it has been an eye-opening adjustment. 🙂 There’s no clear “right” choice. If you’re curious, consider taking some vacation time and keeping the kids home while the other spouse works as a trial run. Is that an enjoyable week for you or not? Expensive use of a week of vacation but cheaper than quitting your job!

  10. In terms of the pension plan, he is likely vested after 5 years but the benefit is typically calculated based off years of service and if you retire at a set age. For example, if I left my state government job after five years (fully vested) and I started drawing it at age 66 (my unreduced benefit age), my monthly benefit would be about $570/mo. If I stay in state service for my career (let’s say 30 years), my monthly benefit based on my current salary would be $3,400/mo. This would likely go up as my salary will continue to rise over the years and we also have the high five rule. It may still benefit him to stay the 5 years to get vested as it would be another income source in retirement, but very doubtful that he would get a full pension unless he stays for the duration or a larger portion of his career. My pension also gives the option to do a refund of contribution, if one departs before being vested and doesn’t plan to return to public service.

    1. Yup, this! I’m guessing he’s in the public employee pension plan in Minnesota, PERA, which functions exactly as you stated. I’m in it too ☺️

      1. Your family is doing amazingly! This is a helpful case study for me, as we’re around the same age and household income, but y’all are able to put way more toward your house. However, something I haven’t seen mentioned is that your home maintenance costs are currently……ridonkulously low. They say to expect to spend about 3% of your house value on its upkeep and maintenance each year, and right now you’re managing to keep it around $30/month. That’s amazing and surely unsustainable. If you haven’t, it might be worth making a 5-year list of projects and budgeting ahead of time for them with some of the mortgage overpayment, so that when your water heater fails or your garage roof leaks, it won’t faze you. Best of luck, you guys are killing it!

        1. Thank you, Kaitlin! You’re right, we should account for more here. After moving from a reno house, it hasn’t really been on my radar to think about unexpected house maintence.

  11. Also, as another Minnesotan – I would add winter hiking to your list! Frozen waterfalls are breathtaking, and it’s so serene and beautiful! Maybe you’re close enough to Minneopa that you could check that out 🙂

      1. We’re in Minneapolis with a 4-year-old and 2-year-old and LOVE hiking. Best investment – framed backpack carriers! We have an Osprey Poco that I *love* that we got on Facebook Marketplace for $150 I think, and then we’re borrowing another one from our local buy nothing group since we only had ~a year where both kids would be in the backpacks (hoping the 4 year old will have the stamina to hike himself next year). I am small and not extremely strong, and I am able to hike miles with my 35 lb toddler without much training because these packs are SO GOOD and keep the weight on your hips instead of your shoulders or back. I tried to hike with a soft-sided baby carrier and it was TERRIBLE. The only thing about these is they aren’t great in the winter because the kids get cold since they aren’t moving. And we also use hiking poles to give ourselves stability when needed (early spring hikes up north with ice).

        1. I’d say the hiking is totally a thing where one has to try different carriers. I’ve hiked with each of my three kids. My ergo is hands down my favorite. I have a special jacket that goes over me and the kid in the ergo (even in a back carry). My husband loves the hiking carriers, but those made my back hurt.

          Kay, my advice is to try carriers and see what works. There’s tons of good hiking in southern Minnesota. I’m partial to Nerstrand State Park and River Bend Nature Center (Faribault). But tons of state parks. Carly and Whitewater are both nice. Oh, and Minneopa is fun, and lots of state parks in the Mankato area. Be sure to do the drive to see bison in Minneopa.

  12. Am I missing something? I don’t see how they could possibly be out of range for qualifying for Roth IRAs. I know we’re only seeing their net income, but even if their gross income was double their net income, they’d still qualify.

    1. Thanks for pointing that out because I was wondering the same! We make more than them and are still nowhere close to the max income limits and are still contributing to our Roths.

    2. Agreed here – I was puzzled by this and tried to do the rough math out. They don’t appear close to the max to me. Wasn’t sure if I missed something.

    3. I was also surprised by this. It looks like they’re making $94k net, so even at double that, they’d be making $188k, way under the $208k limit.

      Our net income is similar to this (and our gross is around $160k), and it got me really worried we might be doing something wrong!

  13. Great job! I would vote to stop the extra payment on the mortgage entirely and invest heavily into stock index funds that are currently “on sale”. Max out the 401k and both IRAs and even put some into taxable brokerage accounts if you have extra. I-bonds are also great for the time being, much better to buy them than paying down a low interest mortgage. You are already paying your mortgage off relatively fast compared to a 30 year. You will be mortgage free before the kids are in college without any extra principal payments. You are paying a huge opportunity cost by paying that debt off early for very little benefit in my opinion. Either way though, you all will be just fine, good job thus far.

  14. I have to agree with the suggestion to stop paying the extra mortgage, at least until daycare bills are done. Or if that’s too painful (I paid my mortgage off early, too, and I totally understand that strong desire ) pay one extra payment per year, or $200 extra a month for now. You’ll free up cash and you can always go back to paying more when the daycare expenses go down or go away.

  15. You all are doing very well! I’m very impressed with your emergency fund. I also am astounded at your low grocery bill. That’s truly amazing. My 2 cents: If I could go back in time I would not waste money on kid lessons at young ages. I think I felt like I “should” do those things. The kids don’t remember them and often they were expensive and they would’ve had just as much fun playing with friends. We did just a lot of playing in the yard and going on nature walks around town. There are tons of free programs at the library. “Books and babies” was one of our weekly highlights. Just getting other kids over to play kid-version musical instruments or paint rocks or play hide and seek or go on a treasure hunt in the woods… Those are all fabulous things. Building forts. Making homemade noodles. Storing up giant boxes from U-Haul or appliances you have purchased and hauling them all out on a rainy day to make into a giant complex in the living room…
    (Exception in my opinion: Swim lessons are a life-saving must but I would wait until they are older.)

    I did appreciate our museum membership largely because it got us out of the house and gave us fun family things to do in bad weather… One piece of advice: check into a museum or aquarium near you that offers reciprocal memberships with other places. They don’t often advertise this but if you find one it’s an amazing key that unlocks the doors at so many places. We got that and were able to go to museums and aquariums all over the state and even out of state as a result. Makes your dollar stretch further.

    1. These are great suggestions! Our kids would love all of those activities! Also, definitely, we did recently sign up for swimming lessons.

      1. If you are part of SELCO (south eastern library cooperative), ask at your local library about free passes. Some have free state park or museum passes you can check out.

  16. Yes re food expenses. I live in New Jersey and I realize food is MUCH more expensive here, but still my jaw dropped that they only spend only $350 for food for three people (not counting the baby since she listed formula separately) per month. That is absolutely amazing. Maybe they have a garden…but still.

    1. Thank you, I try my best. It’s 100% meal planning and online order pickup that keep me on track. I also really enjoy the process, finding sales, and trying to eat simply and healthy.

  17. One more comment: I don’t think there is anything to cut from this modest budget, not even the alcohol/bars part. Don’t make yourself miserable. If you reduce your overpayment by just a couple hundred dollars per month, you are still making progress and you can take your daughter on a few adventures or have a few date nights for yourself. It’s about quality of life.

  18. It sounds like Kay & Max are doing a conscientious budget! As a native Minnesotan, one thing I noticed not listed on their budget was license plates for their vehicles–When I lived in MN, plates were charged by the make, value & weight of the vehicle–very spendy! 🙂 When I moved to OH in the eighties, license plates were $15! When the state doubled that amount, people complained, & I chuckled, & then explained the cost of plates in MN! It’s good you have heavy vehicles to drive in the snow! Also, good that you have an option of working from home when the roads are snow covered! Have you thought about getting a snowmobile for recreation/leisure!? Also, you can enroll preschoolers in ice skating classes AND hockey classes! 🙂

    1. Per Max… this is included in the Misc car budget :). But he used to work at the DMV and he said NEW cars are really what get people! Will definitely look into ice skating for the kids!

  19. Great job, this is super interesting and helpful to see how you’re balancing your young kids and financial goals. Only one thing I’d mention that Mrs. Frugalwoods didn’t, in terms of the “cost” of stepping in and out of jobs to be with young kids – there can sometimes be repercussions on the jobs that are available when you want to re-enter the workforce. With Max working at a family business, I imagine this would be less of an issue. But my oldest is 10 now, and friends who took time off work 7-10 years ago to be with their young kiddos are now having a hard time finding work because of a long “gap” in their resume – even in the job market now where everyone is hiring. This is especially true for women, I think. (To be clear: I think this is wrong! These folks are incredibly qualified and would be great at the jobs they are applying for.) It might be worth chatting with folks in your field who have stepped out of work, or your hiring manager about what they’re seeing. I would hope that the job market would change, but I would also advise you all to think about this potential “cost” of more time job searching or potentially a lower salary.

    Also would reiterate all the good advice about kid activities – libraries often have activity passes. If you have a couple favorite places, it’s a great holiday gift idea for grandparents – ours love that they can get a membership to the zoo/museum/botanic gardens that we use all year, and sometimes even are able to invite other friends along to as part of our pass. Good luck! Enjoy these exhausting, beautiful years together!

    1. This is a big consideration, for sure. And we will be letting the grandparents know about the museum/zoo passes for christmas – great idea!

  20. I live in St. Louis and my kids are grown. But we were so lucky to have a multitude of free places to visit (our zoo, science center, art museum and history museum are all free; theaters can be low cost and our world class botanical garden is free 2 mornings a week for residents). I’d part on the street rather than pay for parking and did take kids a lot of places when they were young. I kind of got burnt out! I don’t regret it but not sure they remember many of those trips. We also have great parks and would meet friends at playgrounds.
    But what is that 1000 hours outdoors challenge? or is it 10,000 hours? Wasn’t Liz doing it? That seems like it would be right up your family’s alley and I think it would be as valuable as trotting them out to museums, etc., when quite young. Also, yes, both my kids took swim lessons, which are vital. And I consider going to pools a balm for kids and adults. Bought season passes. Not sure about swimming weather up north! I always found New England even very cold for outdoor swimming in summer. Guess that’s what you are accustomed to.

  21. You are doing so great! There is fantastic feedback here. I only have 2 thoughts / comments: 1. I was able to offset child care from my state taxes (we live in CA). This was advice from my accountant as pre-school is categorized as child care and as long is it is from a registered provider I could off set this. Alot of my friends didn’t know this and weren’t claiming it! I am sure there are different rules in different states so make sure you check with your accountant on this as it is a big number in your overall expenses. 2. I have a 9 year old kid and when my kid was young a friend gave me some good advice. When they are toddlers and you are in the heavy, hands-on parenting stage you need to balance saving with making life manageable and enjoyable. For me that meant spending money on a cleaning lady! Make sure you have balance so you enjoy this amazing time 🙂 Congrats on your life style choices and success so far. You are doing great!

    1. I wish we had that in MN! All we have is the $5k for dependent care costs, which is SO not enough! And yes, we are still trying to balance everything! Thank you for the great insights!

      1. Sorry to hear that! Good luck with everything. You are doing such a fantastic job of reviewing and balancing life …..much respect mama!

      2. Are you double counting the child care expense in your report? Seems like you are putting aside $5000 from gross income — but then in the expense side, are you listing the full cost of day care? If you are, then seems as if you can add $5000 back into your available resources somewhere (either as income, or reduce the annual child care cost by $5000.

  22. I think their emergency fund is too high. Their monthly spending is only $6,477 if you subtract the extra $1,600 they are paying towards the mortgage. $6,477 x 6 months = an emergency fund of $38,862.
    If there’s truly a financial emergency I’d stop the extra mortgage payments first, so I think that can reasonably be subtracted from their emergency fund.

    1. I was also going to comment on this about the emergency fund not including mortgage prepayment. To me it is a no-brained to take $200 from the mortgage prepayment to go to the monthly expense shortfall. I would also reallocate about $100-200/month from it to kids’ and family activities. For the other $1200, you have options and paying down the mortgage is probably not the best one. Maxing out your 401ks is probably mathematically and tax-wise the best choice, or putting it in a brokerage.

      If you really want it in something super safe, then you are better off putting that $15,000/year in I-bonds at 9% a year. If and when the interest rate goes down to the 4.x% of your mortgage then you have the option of pulling it out to prepay the mortgage. In the meantime you will have increased your returns vs mortgage payoff and kept the money more liquid for longer.

  23. Our local library offers a “cultural pass” for zoos, children’s museums, etc. That might be an option for free activities with kiddos (or date nights!)

  24. MAGI doesn’t include 401k contributions, so while it’s certainly higher than takehome pay, I can’t imagine that they’re anywhere near the $208k threshold.

    Also, I’m pretty sure you can take out $20k in series I bonds per year – $10k each. Not to say that you have to, but it should be an option if you feel ok shifting $10k of your emergency fund there for a year before you can withdraw it.

  25. Check out your local library. We live in one of the bedroom communities surrounding Lexington KY and we have access to our local county library as well as the Lexington Public Library. Both institutions offer a myriad of activities and events for all ages. (Comic Surge tomorrow at JCPL – all free!) In addition to traditional story hours, there are free screenings of recent films, concerts, visits from area wildlife rescues and/or zoos, run/walk groups – it all depends on library’s program director. PLUS, the local library usually has info on much of the other free or almost-free offerings within its community. There’s more to check out than just books at the library.

  26. I don’t believe they’re all that close to the MAGI limit, as others have stated. However, for those of us who are over that threshold, you CAN still contribute to a Roth, just not before tax. It’s still tax free when you withdraw, which is lovely. If you still have other expenses and things to take care of, do that first, but consider using some after tax funds to a Roth if you’ve maxed out other opportunities. At least we can still use our HSA as a tax-free account, so that’s a small something…

  27. Regarding the 5 year vesting on the pension—yes, this is true, however, if you leave before minimum retirement age, then inflation usually makes the annuity worth significantly less since the high 3 is in today’s dollars. Example. You earn $100k /year x1% =$1,000 x5 years = $5000/year but you can’t draw this until your 60ish. If you are that far out, the better option is to request a refund of the the contributions and roll them into an IRA

  28. The extra mortgage payment vs paying for kid activities doesn’t have to be an either/or thing. Cut back on the extra mortgage payments by half and that leaves you with 800 per month to cover the current expenses that are over budget _and_ leave $500 plus per month for kid outings, swimming lessons and unexpected expenses. You’ll still get a massive benefit of the advanced payment on the mortgage just at a slower rate and also put some ease into that budget for “kid things”.

  29. Hi, I noticed that one of your goals is to have passive income in the future. In that case, it seems like you should stop the extra mortgage payments and either put money in the stock market, or save to invest in real estate.

  30. About 529s. I totally agree with prioritizing retirement first and then funding these as is realistic. Our son is a junior in high school. We’ve saved enough for him to go to college. We went to college. We have talked about going to college for his whole little life. And guess what? He doesn’t necessarily want to go to college! Also, our state rolled out a program where community college is free for 2 years, so a lots has changed since we opened his 529.

    He’s young things may change. But all this is to say that there are a lot of things that we don’t know when the kids are young. Having a 529 is great. The grandparents have been generous, and our kid will need some level of post-HS education. But there are lots of options when the time comes.

    1. I agree here. I only opened the accounts because they had a deal where we’d get $50 if I set up a small recurring payment for a few months. I couldn’t pass up a free $100! But I’m in no hurry to fund them currently. Thanks for the insights!

  31. You are doing brilliantly. My only suggestion is to read Liz’s book. Then read Mr Money Moustache website. Then read every word by Laura Vanderkam and Gretchen Rubin.Then tune in daily to Frugal Girl Kristen. You will be set balancing wealth with happiness and gratitude. What more could you ask for x

  32. I want to suggest having a Home Equity Line of Credit (HELOC) as a back up for everything in life. They are relatively easy to get while working, and can be a source of immediate money when necessary, which can be replenished in days-weeks after selling appropriate investments. When my 20 year old son bought a used car, he did not realize that the dealership would want a bank check – he is a Capital One customer and their physical banks are far from our house. I was able to transfer the $7,500 he needed from my HELOC to my checking account instantly (HELOC at same bank as my checking account) and help him get the bank check. He then just transferred his money to me and 2 days later I paid off the HELOC. I think the few days of interest costs between $1-2 which was a reasonable convince fee that saved us from driving an hour to a capital one branch. The HELOC allows me to sleep peacefully and still keep my extra/emergency cash invested in an index fund earning significant interest.

  33. Confused about the ultrasound picture/true knots in the context of this case study? I’m 33 weeks pregnant with an IVF pregnancy and just went on a massive google deep dive about true knots….

  34. You two are doing great! Hoping you can enjoy some well-deserved treats when you need them! A suggestion for swimming lessons: Infant Self Rescue ISR survival swim lessons. You can look up instructors in your area on the ISR website. It’s a big upfront time commitment and expense, but babies as young as 6 months learn to float and to survive if they fall into water in just 4-6 weeks. Priceless. Also a great option for grandparents to gift in lieu of toys. I pulled my children from regular swim lessons because while they were familiar with the water and having fun, they didn’t teach them how to swim and actually survive in the water until age 5 which seemed frustrating and pointless.

  35. I’m age 79, I’m generations away from most people posting here, I’m out of touch I suspect, but I see it disrespectful referring to one’s children as “kids, just kids.

    But the real thing I can’t comprehend is not wanting to stay home and raise one’s children in favor of letting someone else do it to support a lifestyle only possible with two incomes.

    Why have children if priorities are your lifestyle, deciding if you want to stay home with them, bigger houses, etc?

    My wife and I have been married nearly 54 years and lived our lives raising four children based on one income and the lifestyle it could support.

  36. Going to be the lone voice here saying, if you’re curious what it would be like to stay home with your children, stay home with your children! Yes, you take a risk by walking away from a job for however long. But jobs are relatively easy to find, while time with your young children, especially if you plan to send them to traditional school, is so fleeting. You essentially have 2 years left to try this out with your oldest before kinder. If you hate it, what have you lost except a little career momentum that can easily be reclaimed. But oh, what if you love it? What if you realize how freeing and joyful being the one to be there for almost everything can be? And there’s no shame in prioritizing several regular hours of daycare per week to build in a break and pursue your interests. I just want to offer the non conventional perspective that even the greatest job can’t compete with the time you give to your family at this stage in the game. Jobs won’t love you back. Sure, they pay, but there are things whose value is priceless, and rooted in an entirely different economy.

    Just an outlier perspective for your pondering.

    1. Amen to Kate and Richard Quinn! I stay home with my kids. I could have a very decent career in healthcare. A field I mostly loved. And maybe will eventually return to. But I wouldn’t miss this time with my four kids. And I don’t mean in some kind of weird, I need them to need me 24/7 kind of way. I’m their mother, not their best friend or even chief entertainment. They have each other and other friends for that. Some families really have no choice and both parents have to work or there is only one parent. But many families could make it work for one parent to stay home with the littles or only work part time. Don’t get me wrong, it would definitely feel more “fulfilling” sometimes to be getting paid to be a nurse saving someone’s life, or helping them learn about how to make good health choices, or manage a unit (or wipe a bottom). But I’m saving the life (sometimes literally), educating, and managing the people most important to me. I hate doing housework and getting slimed for the 10th time during one day is not fun. But I love seeing my toddler’s smile and listening to his developing speech, counting with my four year old, teaching my six year old to read, and discussing meal plans with my nine year old as he learns to cook. By supper time I’m peopled out. But I’d rather spend that people energy on my people than at a job where I’d come home and have no bandwidth for my kids.

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